Indonesia Banks Sector - Prefer lower LDR and higher CASA

12 October 2010
Asian Daily
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Indonesia Banks Sector --------------------------------------------------------------------------------------
Prefer lower LDR and higher CASA
Teddy Oetomo / Research Analyst / 6221 2553 7911 / teddy.oetomo@credit-suisse.com
● We prefer banks with lower LDR and high CASA as they provide
solid growth capacity as well as resilient earnings during the
period of higher competition for funding.
● In the short term, we expect the capital market to continue to
focus on loans growth aspect of Indonesian banks. The system’s
loans growth has recovered from 4% YoY and 13% YTD in
8M 2009A to 14%YoY and 20% YTD in 8M 2010A.
● In the medium term, we foresee risk of higher competition for
funding. We expect banks with high CASA to perform relatively
better during period of higher competition for funding, while those
with high reliance on time deposit may suffer earnings erosions.
● We maintain our OUTPERFORM rating on BMRI. We maintain
our OUTPERFORM rating on BBRI despite its high LDR, as the
bank’s high CASA provides solid earnings supports during period
of higher competition for funding, and BBNI given its low LDR and
high CASA. We maintain our NEUTRAL rating on BBCA due to
demanding valuations and BDMN and PNBN given their high LDR
and low CASA.
Valuation metrics
Company Ticker CS Price Year P/E (x) P/B
rating local target T T+1 T+2 (x)
BCA BBCA IJ N 6,850 6,900 12/09 20.3 18.7 5.2
BRI BBRI IJ O 10,500 12,000 12/09 13.9 12.1 3.9
Bank Mandiri BMRI IJ O 6,700 8,000 12/09 15.7 12.6 3.4
Bank Danamon BDMN IJ N 6,100 6,000 12/09 17.1 13.3 2.8
BNI BBNI IJ O 3,875 4,400 12/09 14.1 12.7 2.5
Panin Bank PNBN IJ N 1,090 1,050 12/09 17.3 15.2 2.2
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM
Source: Company data, Credit Suisse estimates
Short-term focus: growth
We believe that in the near term, capital market will continue to focus
on the loans growth aspect of Indonesian banks. With around half of
the country’s total loans in the form of working capital, combined with
the bottoming out trend of loan growth, we foresee the potential for
loan growth to remain robust in the foreseeable future. We also
believe that the Indonesian banking system is poised to deliver robust
loan growth ahead.
Figure 1: Turnaround in loan growth
-
5
10
15
20
25
30
35
40
45
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Loans growth (%YoY)
Source: Company data, Credit Suisse estimates
Loan growth for the Indonesian banking system has recovered from
4% YoY and 13% YTD in 8M 2009A to 14 %YoY and 20% YTD in
8M 2010A. We believe that the Indonesian banking system is well
positioned to deliver 24% 2010E loan growth, significant recovery
from 12.4% in 2009A.
We believe that banks with low LDR, such as BBCA, BMRI and BBNI,
are well positioned to capture the growing loan demand as their low
LDR implies that these banks exhibit the highest growth capacity.
Figure 2: LDR vs CASA
BBCA (N)
BBRI (O)
BMRI (O)
BDMN (N)
BBNI (O)
PNBN (N)
40
50
60
70
80
90
100
110
30 40 50 60 70 80
Low cost deposit as % of total deposits (%)
LDR (%)
Source: Company data, Credit Suisse estimates.
Medium to long term: high CASA benefits
In our Indonesia banks sector report, Less liquid than meets the eye,
published on 14 September 2010, we highlight a potential risk of
higher time deposit rate in medium to long term as banks start to
compete for funding. We believe that banks with higher CASA will be
in a better position to confront the risk of higher time deposit rate
ahead. Figure 3 assumes a 100 bp increase in time deposits and that
banks are only able to pass on half of the time deposit rate increase
(50 bp) to their borrowers.
Figure 3: Sensitivity analysis: impact of time deposit rate hike
2011E est. Impact of '+100 bp TD rate (% chg.)
NIM (%) PPOP (Rp bn) Net inc. (Rp) NIM PPOP Net inc.
BBCA 5.2 12,622 8,997 0.02 0.43 0.60
BBRI 8.5 20,059 10,661 (0.09) (1.92) (2.55)
BMRI 5.1 16,361 11,120 (0.03) (1.24) (1.18)
BDMN 10.8 7,537 3,841 (0.29) (4.42) (5.94)
BBNI 5.5 9,741 4,641 0.02 0.09 0.16
PNBN 4.9 3,940 1,721 (0.16) (3.86) (6.40)
Source: Company data, Credit Suisse estimates.
Our sensitivity analysis indicates that earnings of banks with higher
CASA are more resilient to higher time deposit rates. Indeed, given its
high CASA, BBCA, BBNI, BMRI and BBRI’s earnings are expected to
be relatively unaffected by higher time deposit rate, while BDMN and
PNBN may suffer from earnings erosions due to their high reliance on
time deposits.
We maintain our NEUTRAL rating on BBCA due to its demanding
valuations. We maintain our OUTPERFORM rating on BBRI despite
its higher LDR, as we believe that its high CASA provides solid
support to its earnings during higher competition for funding period.
We maintain our OUTPERFORM rating on BMRI and BBNI as these
banks exhibit solid growth capacity as well as high CASA. We
maintain our NEUTRAL rating on BDMN and PNBN given their high
LDR and low CASA.
12 October 2010
Asian Daily
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Companies Mentioned (Price as of 11 Oct 10)
Bank Central Asia (BBCA.JK, Rp6750.00, NEUTRAL, TP Rp6900.00)
Bank Rakyat Indonesia (BBRI.JK, Rp10800.00, OUTPERFORM, TP Rp12000.00)
Bank Mandiri (Persero) (BMRI.JK, Rp6800.00, OUTPERFORM [V], TP Rp8000.00)
Bank Danamon (BDMN.JK, Rp6000.00, NEUTRAL [V], TP Rp6000.00)
Bank Negara Indonesia (BBNI.JK, Rp3875.00, OUTPERFORM [V], TP Rp4400.00)
Bank Pan Indonesia Tbk (PNBN.JK, Rp1070.00, NEUTRAL [V], TP Rp1050.00)
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